Songwriter Johnny Mercer founded Capitol Records in 1942[4] with financial help from songwriter and film producer Buddy DeSylva and the business acumen of Glenn Wallichs, owner of Wallichs Music City. Mercer raised the idea of starting a record company while golfing with Harold Arlen and Bobby Sherwood and with Wallichs at Wallichs's record store. On February 2, 1942, Mercer and Wallichs met DeSylva at a restaurant in Hollywood to talk about investment by Paramount Pictures.

On March 27, 1942, the three men incorporated as Liberty Records (not the unrelated label Liberty Records). In May 1942, the application was amended to change the company's name to Capitol Records.[5]

On April 6, 1942, Mercer supervised Capitol's first recording session where Martha Tilton recorded the song "Moon Dreams". On May 5, Bobby Sherwood and his orchestra recorded two tracks in the studio. On May 21, Freddie Slack and his orchestra recorded three tracks in the studio; one with the orchestra, one with Ella Mae Morse called "Cow-Cow Boogie" and "Air-Minded Executive" supervised by Mercer. On June 4, 1942, Capitol opened its first office in a second-floor room south of Sunset Boulevard. On that same day, Wallichs presented the company's first free record to Los Angeles disc jockey Peter Potter. On June 5, 1942, Paul Whiteman and his Orchestra recorded four songs at the studio. On June 12, the orchestra recorded five more songs in the studio, including "Trav'lin' Light" with Billie Holiday, On June 11, Tex Ritter recorded "(I Got Spurs That) Jingle Jangle Jingle" and "Goodbye My Little Cherokee" for his first Capitol recording session, and the songs formed Capitol's 110th produced record.

Capitol was the first major west coast label to compete with labels on the east coast such as Columbia, Decca, and RCA Victor. In addition to its Los Angeles recording studio, Capitol owned a second studio in New York City and occasionally sent mobile recording equipment to New Orleans and other cities.

Capitol released a few classical albums in the 1940s, some of which contained a heavily embossed, leather-like cover. These recordings appeared on 78 rpm format, then released on the 33 format in 1949. Among the recordings: Brazilian composer Heitor Villa-Lobos' Choros No. 10, with contributions from a Los Angeles choral group and the Janssen Symphony Orchestra (1940–1952), conducted by Werner Janssen; Symphony No. 3 by Russian composer Reinhold Moritzovich Glière; and César Franck's Symphony in D minor, with Willem Mengelberg and the Concertgebouw Orchestra.

In 1949, Capitol opened a branch office in Canada and purchased KHJ Studios on Melrose Avenue adjacent to Paramount in Hollywood.

Capitol began recording rock and roll acts such as the Jodimars and Gene Vincent. There were comedy records by Stan Freberg, Johnny Standley, and Mickey Katz. Children listened to Capitol's Bozo the Clown albums. Although various people played Bozo the Clown on television, Capitol used the voice of Pinto Colvig, who was also the voice of Goofy in Walt Disney cartoons. Don Wilson also released children's records. In June 1952, Billboard magazine contained a chronicle of the label's first ten years in business.[7]

In 1955, the British record company EMI ended its 55-year mutual distribution agreement with RCA Victor and acquired 96% of Capitol's stock for $8.5 million. EMI built a studio at Hollywood and Vine to match its state-of-the-art Abbey Road Studios in London.

The Capitol of the World series introduced in 1956 and active into the 1970s encompassed German Beer Drinking Songs, Honeymoon in Rome, Australian Aboriginals, and Kasongo! Modern Music of the Belgian Congo. Many were produced by Dave Dexter Jr. This series contained over 400 albums.[9]

In 2012, the recorded music operations of EMI were sold to the Universal Music Group and the world headquarters were re-established in the Capitol Tower in Hollywood as part of the subsequent reorganization of the Capitol Music Group. Steve Barnett, previously an employee of Columbia, was hired as Chairman and CEO of the division.[11][12]

Capitol filed a lawsuit against Vimeo, an online video-sharing website, for audio copyright infringement. Capitol filed the claim after users were visibly lip-synching to some of their tracks.[13]

Following a legal action by Capitol against the ReDigi.com online company in April 2013, the latter was found to be in violation of copyright law. Capitol Records claimed that ReDigi was guilty of copyright infringement due to a business model that facilitated the creation of additional copies of Capitol's digital music files, whereby users could upload the files for downloading or streaming to the new purchaser of the file. ReDigi argued that the resale of MP3/digital music files is actually permitted under certain doctrines ("fair use" and "first sale") but the court maintained that the doctrines' application "was limited to material items that the copyright owner put into the stream of commerce."[14]

In 2014, PGH Live Music joined the team and Katy Perry founded the record label Metamorphosis Music, starting a label venture with Capitol.[15] The name of the label was later changed to Unsub Records in 2016.[16]

Also that year, Capitol rose to number two market share and won four categories at the Grammy Awards for music by Beck and Sam Smith.[17]

In 2018, Capitol's electronic division Astralwerks relaunched with a new team and moved its entire operations to Capitol's tower in Los Angeles.[18]

Designed by Welton Becket with Louis Naidorf, a young architect from Becket's office, serving as project designer[19][2] the thirteen-story, earthquake-resistant Capitol Records Tower is the world's first circular office building. Home to several recording studios, it is one of Hollywood's most distinctive landmarks. Although not intended as a tribute to record players, its wide curved awnings and tall narrow tower mimic the appearance of a stack of gramophone records atop a phonograph. The building was commissioned by EMI after its acquisition of Capitol Records in 1955 and was completed in April 1956. The building north of the intersection of Hollywood and Vine and is the center of the company's consolidated West Coast operations. It was nicknamed "The House That Nat Built" after the financial success of Capitol singer Nat King Cole. The rectangular ground floor is a separate structure joined to the tower after it was completed.

In September 2006, EMI announced that it had sold the tower and adjacent properties for $50 million to New York-based developer Argent Ventures.[20] In mid-2008, a controversy erupted over a plan to build a condominium complex next door, igniting fears that the building's acoustic properties, specifically its underground echo chambers, would be compromised. It was announced in November 2012 that Steve Barnett would become Chairman and CEO of Capitol Music Group and would be based at the Capitol Records Building.[21] Capitol and artist Richard Wyatt Jr. restored his Hollywood Jazz Mural on the south wall of the Capitol Records building.[22]

Capitol's recording studios were designed to minimize noise and vibration, then newly important goals in the high-fidelity sound era. An inner wall floating on layers of rubber and cork was erected inside the building's 10-inch-thick (250 mm) concrete exterior walls, leaving a one-inch air gap to provide complete sound isolation.[23] The facility also features subterranean echo chambers that allow engineers to add reverberation during the recording process. Eight trapezoidal chambers are located 30 feet (9.1 m) underground, with 10-inch concrete walls and 12-inch-thick (300 mm) concrete ceilings. Speakers on one side and microphones on the other permit an echo effect of up to five seconds. Studios A and B can be combined for the recording of orchestral music and symphonic film soundtracks. The first album recorded in the tower was Frank Sinatra Conducts Tone Poems of Color.

Capitol modified albums that were originally released in other countries on other labels. Albums released in the United States contained fewer tracks, usually no more than 11 or 12, compared to albums released in the United Kingdom due to differences in the method of publishing royalties were calculated in the two countries.[24] Also, in the American market it was expected for albums to include the current hit single, whereas British albums typically did not duplicate songs released as singles.

Possibly the most well-known treatment of an international artist's recordings was the company's release pattern for various albums by the Beatles. This began with Capitol's release of Meet the Beatles!, the first album by the band to be released by Capitol in the United States. It was based on the British album With the Beatles, which contained 14 tracks and a running time of around 35 minutes. Capitol removed five tracks ("Money", "You've Really Got A Hold On Me", "Devil in Her Heart", "Please Mister Postman", and "Roll Over Beethoven") and added both sides of the band's first American hit single ("I Want To Hold Your Hand" and "I Saw Her Standing There") and the British single's B-side, "This Boy". "I Saw Her Standing There" was on the Beatles' first British album Please Please Me. This resulted in Capitol releasing Meet the Beatles as a 12-track album with a duration of around 30 minutes, and made it comparable with other American pop albums. It also provided Capitol with unreleased tracks for use in later US Beatles albums such as The Beatles' Second Album.

Capitol also issued "duophonic" stereo releases of some recordings where the original master was monophonic. Capitol engineers split the single master monaural track into two, boosted the bass on the right channel, boosted treble on the left channel and added a split-second delay between channels to produce a "stereo" release. This Duophonic process meant that the Beatles' American fans heard a slightly different song from that heard by the rest of the world if they listened to the stereo version.[25]

This trend in the Beatles' American discography continued until 1967 when a new recording contract with EMI was signed. Unhappy with the way Capitol in the US and other companies around the world were issuing their work in almost unrecognizable forms, beginning in 1967 the Beatles gained full approval of album titles and cover art, track listing and running order in North America. Starting with Sgt. Pepper's Lonely Hearts Club Band Beatles' albums were released unmodified. Issue of 45 RPM singles featuring album tracks was also stopped. Instead non-album tracks were issued as singles between album releases.

Beginning in 1948, Capitol Records were released in the UK on the Capitol label by Decca. After its 1955 acquisition of Capitol, EMI took over distribution in 1956.[26] EMI's Parlophone unit handled Capitol label marketing in the UK in later years.[27]

In 2012, EMI was sold to Universal Music Group. Universal Music started Capitol as an autonomous label in the UK with the rights to the Beatles' catalog.[28] This marks the first time that Capitol in the UK operated as an autonomous label.[29]

Capitol Records of Canada was established in 1949 by businessman W. Lockwood Miller. Capitol broke with Miller's company and formed Capitol Record Distributors of Canada Limited in 1954. EMI acquired this company when it acquired Capitol. The company was renamed Capitol Records of Canada Ltd in 1958 after Miller's rights to the name expired. In 1959, Capitol of Canada picked up distribution rights for EMI's labels Angel, Pathé, Odeon, and Parlophone.[30]

In 1957, Paul White joined Capitol of Canada and in 1960 established an A&R department independent of the American company to promote talent for the Canadian market.[31] The division found native talent such as Anne Murray and EMI musicians from other countries. Beginning in 1962, Capitol of Canada issued albums by British musicians such as Cliff Richard, Helen Shapiro and Frank Ifield. They accepted the Beatles long before the American company. By 1967, they were distributing non-EMI labels such as 20th Century Fox, Buena Vista Records, Disneyland, and Pickwick.[31] The company was renamed Capitol Records-EMI of Canada in 1974, before the EMI Music Canada name was adopted in 1993.[32][33][34]